An offer you can’t refuse.

An offer you can’t refuse.

The WSJ recently reported in Zynga Leans on Some Workers to Surrender Pre-IPO Shares that the technology company is making certain employees an offer they can’t refuse: cough up your pre-IPO stock options or your first born is dead.  Well, not really. The threat is that the employee will lose his or her job. While it is understandable that the company doesn’t want to have another Google cook who makes out like a bandit when Zynga goes IPO, it is also unclear whether Zynga’s approach is either legal or wise.

Under New York’s Limited Liability Company Act, for example, an employee’s sweat equity is valued like a cash contribution. So if you offer $50,000.00 of your cooking services to a cash starved start-up in exchange for 2% of the company and a measly $25,000.00 salary, you are in the same position as another investor who put in $50,000.00 cash for 2%. Of course, you could end up getting a windfall if the company eventually goes public and is worth $2 billion.

That is the position Zynga is about to find itself when it goes public. To rectify the problem of attracting new talent with not enough shares to dole out, the company is apparently going to certain employees and demanding that they return some or all of their stock options, or else. If this is merely a case buyer’s remorse, then Zynga will be asking for a great deal of breach of contract and wrongful termination litigation from terminated employees. Of course, if the employees have not lived up to their part of the bargain, then the law in New York at least allows companies like Zynga to ask for interests back under threat of breach of contract litigation against the employee.

In either case, it doesn’t seem like good business. People will be more reticent to work with start-ups if they expect that, down the line, the company will finagle them out of their not yet vested stock options so that they can go to more efficient resources — i.e. more valuable people. If a company is worried about getting itself into a tight bind like this, it seems better to hybrid the transaction with some cash so that the company doesn’t find itself later on with not enough stock to go around, or, worse, embroiled in class action litigation. Otherwise, the company shouldn’t make the deal in the first place.

Doth not a rose by any other name smell as sweet?

Doth not a rose by any other name smell as sweet?

Doth not a rose by any other name smell as sweet? Of course it does. The same is true of an isolated gene. It may have different uses and molecular characteristics once separated from the human genome. However, the genetic code within the gene remains the same. Because such code is found in nature, the isolated gene should not be patentable subject matter. And yet the United States Court of Appeals for the Federal Circuit recently ruled in The Assoc. for Molecular Pathology, et. al. v. Myriad Genetics, Inc. (“Myriad”) that such a gene is patentable.  In so holding, the Court went too far.

Myriad filed a patent over BRCA, which is an isolated gene from the human genome. Think of the BRCA as a link from a chain link fence. The company then used BRCA for various purposes, including the treatment for breast cancer. Indeed, the company filed a patent for such uses and applications. This patent was not the subject of the dispute.

Instead, the dispute centers on whether Myriad has the right to a government sanctioned monopoly over BRCA. A majority of the Federal Circuit held that it did. The majority’s reasoning: while the genetic code that underlies the BRCA is the same as the genetic code found in the human genome, the molecular nature of the BRCA changes once isolated from its chain. This is akin to saying that a link from a chain link fence can be heated and bent into forms that would not be possible if the link were still in the chain link fence.

However, the fact remains that the link still is made of the metal from which it came, just as the BRCA has the same generic code. Of course, Myriad should be — and was — rewarded with a patent for new and non-obvious applications or uses of the BRCA for the treatment of breast cancer. And the Court rightly upheld Myriad’s patent over a genetically modified gene that the company constructed in the laboratory and which did not naturally occur in nature.

In the end, allowing Myriad to monopolize the BRCA gene with a patent precludes others from experimenting with the gene in order to find new commercial and non-commercial applications that benefit society. In so doing, the Federal Circuit has placed too much undeserved power over a naturally occurring item in the hands of one company.